Following Monday's jaw-dropping after-hours plunge for the VelocityShares Daily Inverse VIX Short-Term ETN (XIV), market observers and traders feverishly speculated Credit Suisse (CS), XIV's issuing bank, would be forced to terminate the exchange-traded note. They're just numbers. Derivatives exists to bet on where the numbers will be in the future, but for many investors a more attractive option was a product that could be traded on an exchange.
Lots of firms, including Credit Suisse, have been giving people a chance to bet against volatility. The company, which owns the VIX intellectual property and licenses it to companies that create funds linked to it, reports quarterly results on Friday.
Vident Investment Advisory LLC acquired a new position in Credit Suisse AG - VelocityShares Daily Inverse VIX Short Term ETN during the third quarter worth $1,122,000.
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Last year, traders argued that the VIX remained depressed because realized volatility in US equities has diminished and economic fundamentals remain supportive.
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The bank also said that the XIV ETC activity is considerate of the market volatility of today and there Credit Suisse will not suffer any material impact.
Monday's stock market rout left two of the most popular exchange-traded products (ETPs), which investors use to benefit from calm rather than volatile conditions, facing potential liquidation, market participants said. The VIX surged on Monday, which roiled Credit Suisse's XIV product. The VIX jumped 115%, sending the XIV and SVXY funds down at least 15%.
SVXY, which had $770.2 million in assets under management at the end of 2017, provides short exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration, according to ProShares.
"Since the intraday indicative value of XIV on February 5, 2018 was equal to or less than 20% of the prior day's closing indicative value, an acceleration event has occurred", said a press release put out by issuer Credit Suisse.